Why do some businesses always seem to stay ahead of the competition? One reason is that they pay constant attention to evaluating and developing their business strategy. They continually seek to implement those strategic goals that will create the most sustained competitive advantage.
Three key perspectives can improve the ability of a business to focus on strategic goals. Each perspective provides a fundamental and necessary view of the way forward to implementing a successful business strategy.
1. The People Perspective
Businesses start by formulating their strategy and move on to planning the tactical level of detail, but eventually someone has to implement these plans. Turning strategic goals into reality requires people. That’s why any strategy is only as good as the people who carry it out, at the sharp end of the business.
In all areas of business, operational managers have to make important strategic decisions. Take the simple example of buying expensive machinery to achieve a certain production target. In this case, there are many strategic implications that managers need to consider, beyond the immediate capital expenditure of the purchase. For example, the new price/ volume mix of products made more efficiently, the opportunity costs or the value of the best alternative forgone; and the resulting reorganisation of labour force.
It is therefore important that people at all levels, including middle management, are clear about the strategic direction of the business. Although they are working in different specialist teams – production, sales and marketing, procurement, finance - each with their own focus on the actual execution of strategy, a shared understanding of the strategic goals for these activities is vital.
To illustrate this point, let’s look at Georgia-Pacific, an American pulp and paper company that belongs to Koch Industries, second largest privately owned company in the US. Georgia-Pacific adopted a Decision Making Framework (DMF) for all substantial capital investments. This tool requires mid-level managers to prepare a mini-business plan with a market overview, strategic rationale and a discounted cash flow analysis prior to each investment being presented for approval to the top management.
2. The Process Perspective
A business strategy may involve reorganising, restructuring, or perhaps even downsizing the business in response to market pressures. A focus on continuous improvement provides the strategic motivation for these options – the crucial element is that a business gains a good understanding of the nature and sources of operational efficiencies.
An application of Pareto’s rule is helpful here. It predicts that on average 20 per cent of business activity will generate 80 per cent of the profits. Businesses can use their own data more intelligently to optimise their activities in line with these profitability predictions and address this structural problem by bringing more resources to the profitable 20 per cent. A Total Quality Management approach also helps businesses re-evaluate their key resources and core competences, as well as the value that the business adds for its customers.
3. The Growth Perspective
Companies’ plans for strategic growth tend to adopt one of three options: organic growth (build); strategic alliances (borrow); or mergers and acquisitions (buy). But adopting a more flexible stance of “buy, build or borrow” (designed by Professors Laurence Capron of INSEAD and Will Mitchell of the Rotman School of Management at the University of Toronto and Duke University’s Fuqua School of Business) and having a balanced mix of these three different modes of growth can help businesses deliver long-term sustainable growth. Companies need to overcome their preferences for one specific mode and build a discipline for developing a rich portfolio of internal and external growth projects, following the example of Johnson & Johnson.
Dr Anna Grosman is a lecturer in strategy at Aston Business School and one of the experts delivering the new Aston Professional Managers’ Award career accelerator programme which starts in Autumn 2014.
To find out more and to discover how the award could help you and your organisation, go to: www.aston.ac.uk/prof-mgr-award/ or call us on 0121 204 3160.